Supreme Court Ruling MSO Can't be Exclusive Agent

The Supreme Court gave a significant ruling that no broadcaster can appoint a Multi System Operator (MSO) as its exclusive agent for distribution of its channels to other MSOs. This verdict came on 3rd April 07 soon after Star India Pvt. Ltd.'s civil appeal to the Apex Court challenging Telecom Disputes Settlement & Appellate Tribunal's (TDSAT) decision given on 24.8.2005 ordering Star India to supply signals of its bouquet of channels by entering into an agreement with Sea TV Network Ltd, an MSO in Agra (UP).

On 8.2.2005 Star India entered into a Distributor Agreement with Moon Network Pvt. Ltd. under which Moon Network was a distributor on a sole and exclusive basis in the territory of Agra. In the agreement Star India had stated that it was an authorized distributor of the Satellite T.V. channels namely Star Plus, Star Movies, Star World, Star News, Star Gold etc and that Moon Network an MSO was engaged in the business of transmission of TV channels through cables. Also, Star India excluded the distribution of the subscribed channels through DTH, CAS, Broadband or any medium other than through a ground cable network.

When Sea TV Network approached Star India for decoders, they were asked to get the signals from a competing MSO in the city, namely Moon Network who were appointed by Star India as exclusive distributors of Star India channels. Sea TV refused to go to their competitor and approached the TDSAT for relief. TDSAT gave the verdict in favour of Sea TV directing Star India to supply their channels directly to them.

The case heard vehement arguments by the appellants. Star India reasoned its exclusive agreement with Moon Network saying that there was requirement of appointing an agent in different territories looking to the economies of scale of operations carried out by Star India throughout the country. According to Star, the agreement expressly stated that the relationship between the parties was on principle to principle basis and that there was no relationship of principal and agent.

The status of Moon Network, according to the contract was of an MSO engaged in the business of transmission of TV channels through ground cables. This aspect was considered important by the court since in the present controversy one of the main issue which arose for determination was the difference between transmission including re-transmission of signals on one hand and providing TV channels on the other hand which expression finds place under the Telecommunication (Broadcasting and Cable Services) Interconnection Regulation, 2004.

On behalf of the Star India Pvt. Ltd, Shri Mukul Rohtagi, a Senior Counsel indicated towards Regulations 3.1 and 3.2 of the Interconnect Regulation according to which a broadcaster is entitled to give signals through an agent, who can also be an MSO so as to reduce high distribution costs. They believed that appointment of an MSO as an agent per se is not prejudicial to competition and if at all it is prejudicial it should be established in each case by the complainant. He said that under the Interconnection Regulation framed by TRAI there was no prohibition on Star India in the matter of appointment of any MSO as its agent on exclusive basis for a given territory.

He opined that a proper interpretation of the Interconnection Regulation clears that a broadcaster is obliged to provide its signals to all distributors of TV channels on non-discriminatory basis. But the manner of providing signals has been left to the discretion of the broadcaster. The Apex Court dismissed the civil appeal for various reasons. Firstly, it found no error in the judgment of TDSAT which has held that in providing signals to a distributor through an agent who is also in turn a distributor is by itself discriminatory. Every contract under the Interconnection Regulations has two aspects namely commercial side and technical side. Appointing an agent on the commercial side does not bring disputes. The difficulty arises when the broadcaster as in the present case appoints a distributor, who in turn is an MSO because in such a situation an agent-cum-distributor is also a competitor of the MSO who seeks signals from the broadcaster. The Court believed that biasness comes in if an MSO is bound to approach his competitor MSO for receiving signals. Obvious reason being that the subscriber base of the two MSOs is different from each other and if one MSO has to depend on the feed to be provided by the exclusive agent of the broadcaster then the very object of the Interconnection Regulation stands defeated.

Keeping in mind this distinction the Court found that although it was clear that a broadcaster is free to appoint its agent under the provision of clause 3.3 but such an agent cannot be a competitor or part of the network.

The Court realized that the object of Interconnection Regulation is to eliminate monopoly. If Sea T.V. which is in competition with Moon Network has to depend on the feed provided by its business rival and if the quality of the signals available through that feed is poorer than the quality of the signals available through Decoders, then the Tribunal is right in holding that such deal is unfair. In this connection fudging of data (voice and picture) is possible. Even the speed of data-transmission to Sea T.V. Network could get affected which would adversely affect the subscribers of Sea T.V. Quality of the signals receivable by Moon Network directly from the broadcasters would certainly be better than the quality and speed of the signals receivable by Sea T.V. Network. For this reason Sea T.V. refused to take signals through the feed it was asked to. Therefore apart from competition, the business of Sea T.V. Network was also likely to be affected because of the poor quality of signals also resulting in shifting the subscriber base of Sea T.V. and make it a part of the subscriber base of Moon Network.

Secondly, the Court understood the basic difference between making available T.V. channels and re-transmission of T.V. channels. Along with this it also comprehended the vital distinction between what is received by an agent-cum-distributor from the broadcaster and what is subsequently re-transmitted by that agent-cum- distributor to other MSOs/Cable Operators like Sea T.V. Network. Infact, the contract indicates that the relationship between Star India and Moon Network is not based on principal-agent relationship. In other words the Star India Pvt. Ltd. has given distribution rights exclusively to Moon Network Pvt. Ltd. for the territory of Agra. This was never disclosed to the Tribunal. Rather it was argued that Moon Network was the agent of Star India Pvt. Ltd.

Therefore, the Apex Court viewed that the Tribunal correctly drew a distinction between what is called as making available of T.V. channels and re-transmission of T.V. channels. Keeping in mind this distinction the Court found that although it was clear that a broadcaster is free to appoint its agent under the provision of clause 3.3 but such an agent cannot be a competitor or part of the network. This condition particularly applies when under the contract exclusivity is provided for in the sense that the signals of the broadcaster shall go through the cable network owned and operated by such an agent-cum-distributor.

However, in cases of functional overlap the Court viewed that in every matter the Tribunal will examine the written contracts between the parties and ascertain actual prejudice and not decide the matter on conceptual basis. For the aforestated reasons the Court found no merit in the civil appeal and the same was accordingly rejected.